In our last three newsletters, we’ve been talking about closing the gap between what you know about making your company valuable and what you’re doing about it. Starting by getting everyone pointed in the same direction, with a plan that’s flexible enough to deal with a range of scenarios. Now it’s time to take a good, close look at what it is you’re doing—your portfolio of projects, programs, and initiatives. Are those projects carefully chosen to support your corporate strategy for creating value? Or, is your portfolio heavy with initiatives that overlap, that are obsolete (relative to your key priorities), or that never promised much value to begin with? The pet projects of charismatic individuals, perhaps? Do you allow your portfolio of initiatives to be driven by individuals and advocacy?
 It’s hard to resist a good sales pitch, especially when it’s coming from a dynamic producer. No one wants to question the initiative assuming it fits the overall strategy. And once a project begins, it’s even more difficult to raise this issue. It’s easier to leave all those misaligned initiatives in place and gradually add better ones. No wonder many companies wind up with a bulging and lopsided portfolio of projects that do not support the overall business strategy or its value creation goals. Financial executives are well aware of the danger. In a Deloitte Consulting LLP October 2004 survey of 141 financial executives, more than 24 percent of respondents ranked the misalignment of projects and business strategies number one among five worries. And, of respondents who described their companies as well-aligned, only half reported that their IT spending, for instance, is aligned with corporate projects, and even fewer believe that IT operations and organization are aligned with their own stated IT strategies. Trouble is, the misaligned projects not only drain and waste valuable resources, but also may conflict with and undermine the truly valuable initiatives. You can’t afford to let that happen. You’ve got to do something. The first step is to prepare an exhaustive inventory of your portfolio of initiatives, including every discretionary project in every area. You will probably find many more than you expect (by a factor of 2). Surprise! Second, map all the projects against specific value drivers and subdrivers, such as revenue growth, operating margin, and asset efficiency-as well against the capabilities your company must build to sustain an impact on these value drivers for the long haul. Does every project support some value driver? Is there any part of your strategy that is not supported by some initiative? An Enterprise Value Map™ is a useful tool to help determine if your project portfolio serves your value strategy. 
Step three is a fearless cost/benefit analysis of each initiative. You’ll be surprised to see how many projects don’t even have a proper business case. Which projects seem poised to yield the greatest value? Are you too heavily weighted on one or two drivers? Could it be, for instance, that while you think you’re shooting for revenue growth, 80 percent of your project portfolio is devoted to cost-cutting? Scary? Yes, but better to know now than continue to pour resources into projects that will not help you meet your objectives. Once you’ve mapped your project portfolio, you’ll need to analyze which initiatives need tweaking or even more. There’s probably justification for some being eliminated. New ones may need to be added, and others consolidated or at least more closely linked. It would not be uncommon to find a different project portfolio approach may also mitigate risk, while simultaneously helping to optimize the value impact. The very process suggests some clear actions. Only question is: Who’s responsible for taking them? End of story? No way. Things change. You’ll need to repeat the process regularly to keep your project portfolio aligned, the same way you balance your portfolio of personal investments from time to time. Case study: Align your portfolio of initiatives with your objectives and strategies A leading high-tech hardware manufacturer recently used this technique to evaluate its $307 million annual investment in twelve information technology projects. Were the IT initiatives aligned with the company’s corporate strategy? It turned out that while the overall initiative alignment was on target, there were some problems just below the surface. Two projects failed to report back, and of the ten that did, only three were able to make a sound quantitative case for their contributions to the company’s value objectives. Those in charge of certain projects couldn’t even explain generally how those projects supported the company’s business objectives, except to assert that they “increased productivity." More than half of the projects overlapped on several value drivers, to boot. So, they didn’t hesitate to combine the overlapping initiatives, saving a bundle. The cost/benefit analysis revealed that even some healthy IT projects were devoting too many resources to margin improvement and not enough to revenue growth. Two of the projects contributed more than 90 percent of the cash flow from IT initiatives, while representing only about one-third of the cost of the portfolio. It was obviously time to consider whether they had too many of its IT eggs in these two baskets or whether the other projects in the mix weren’t carrying their load. Of course, analyzing an entire project portfolio requires far more work than this narrow look at an IT project portfolio, but the process is the same. |
Steps: - Identify your portfolio of projects.
- See how well or poorly each project is positioned to create value.
- Vet your projects on the basis of their alignment with strategy and their potential to create value.
- Prioritize the ones that make the cut, and be sure their alignment serves your key business issues and opportunities. Is any objective going unserved?
- Be sure you know who is accountable for creating value from each project and that they know they’re being held accountable.
This monthly newsletter, produced in association with the Economist Intelligence Unit (EIU), contains practical strategies, tools and techniques to help you drive value in your organization. Subscribe or update your profile to receive future editions. The Value Habit can be found under "Insights & Ideas" subscriptions. To subscribe, simply select The Value Habit and save your profile. Related Content:
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